Workers compensation insurance will pay the statutorily required benefit(s) as outlined in your State's Workers' Compensation Law if an employee is injured due to their job or has contracted an occupational illness. Medical costs, disability payments, rehabilitation and death benefits are all covered by this type of insurance. Regardless of fault, the worker's compensation carrier will be responsible for paying these types of benefits. In addition, employers liability insurance is included within the policy. This insurance defends and pays claims against the employer for work-related injuries that fall outside the employer's State Workers' Compensation Law.
Most owners treat this as one coverage. It is really two, and the expensive surprises usually come from the second, employers liability.
Workers Compensation Insurance
Workers compensation insurance pays the medical, disability, rehabilitation, and death benefits a state's law requires for a work-related injury or occupational disease, regardless of fault. The same policy adds employers liability coverage for work-injury claims outside that law.
What is workers compensation insurance?
A worker's compensation program is a "statutory trade," which is considered as the "exclusive remedy" for employees who have received on-the-job injuries. Employees receive timely, no-fault benefits for work-related injuries but are required to forego their right to sue their employer. An injury or illness must meet two requirements in order to qualify as "compensable": the injury or illness must have arisen out of employment (i.e., it must have been caused by the job), and occurred in the course of employment, at the right time and place. The National Council on Compensation Insurance (NCCI) has drafted the Standard Workers Compensation and Employers Liability Insurance Policy (form WC 00 00 00 C) which includes an Information Page listing the covered states in Item 3.A and provides the employers liability limits in Item 3.B.
What benefits does workers compensation pay?
Part One incorporates your state's workers compensation law by reference, which is why it has no standard limit. It pays four categories of statutory benefits:
- Medical benefits cover necessary care for a compensable injury, from surgery to physical therapy and prescriptions. Statutes, not policy limits, decide what is paid.
- Disability benefits replace part of lost wages, subject to state maximums and a waiting period. California pays no temporary disability for the first three days off work unless the worker is hospitalized or the disability runs past 14 days.[1]
- Rehabilitation benefits pay to restore the employee's physical capacity, plus vocational rehabilitation in some states.
- Death benefits cover burial expenses and ongoing support for qualifying dependents.
One caveat catches owners off guard: Part One can make you repay benefits the insurer advances after your serious and willful misconduct, an OSHA violation, or an illegal firing.
What is employers liability insurance (Part Two)?
If workers comp is the exclusive remedy, why does the policy need a liability section? Because the statute does not reach every employment-related claim. Part Two, employers liability insurance, covers lawsuits for work-related bodily injury outside that law, infrequent claims that are expensive when they hit.
| Part One: Workers Compensation | Part Two: Employers Liability | |
|---|---|---|
| What it pays | Statutory medical, disability, rehab, and death benefits | Damages for work-injury lawsuits outside the statute |
| Policy limit | None, whatever the state law requires | Item 3.B limits, commonly $1,000,000 |
| Fault | No-fault, paid regardless of who caused the injury | Liability claims the employer must defend |
| Triggered by | A compensable work injury or disease | Action-over, loss of services, consequential, and dual-capacity suits |
Third party action over claims are the most likely triggers of coverage. An injured worker receives workers compensation (Part One) when he/she gets hurt using your equipment. Then that worker sues the equipment manufacturers. The manufacturer then brings an action against you for negligence in maintaining their product. If the lawsuit has been driven back to you through an indemnity provision from one of the insured contracts, refer to general liability policy or if there is no such indemnity, refer to Part Two. Part Two is subject to limits within Item 3.B with most policies being limited at $1,000,000 per accident, policy limit and each employee by disease and also includes 12 exclusions such as contractual liability, punitive damages and employment related claims including wrongful termination.
How is workers comp premium calculated?
The premium starts with your classifications (and payroll) and your rate (a rate per $100 of payroll for each class), then adjusts by your experience modification factor, which rewards you for being a "clean" risk (i.e., better loss experience than expected for your class) and penalizes you for being a "poor" risk. In addition to this, workers' compensation insurers closed calendar year 2025 with a combined ratio of 91 percent, according to NCCI's annual State of the Line Report[2]. This means that insurers are earning an underwriting profit, and therefore competing for clean-history accounts.
The premium is also provisional. An auditor reviews your actual payroll after the policy period, and the final bill is subject to verification and change by audit. California does not use NCCI rating at all, its class codes and mods come from the WCIRB.[3] Details that go wrong most often:
- Verify your classifications: misclassified payroll is the most common audit surprise.
- Check the states in Item 3.A: Part One applies only to the states listed there, and the four monopolistic states are excluded from the policy entirely.
- Match endorsements to contracts: unlike the CGL, the policy allows no waiver of subrogation without the WC 00 03 13 endorsement, and the entity usually must be scheduled.
- Mind leased and contracted labor: collect a certificate of insurance from every subcontractor, since an uninsured sub or PEO gap can leave you the statutory employer of their injured worker.
Frequently asked questions
Is workers compensation insurance required by law?
In nearly every state, yes. Coverage is compulsory for most employers, though thresholds and exemptions (certain agricultural or domestic workers, sole proprietors, and partners) vary by state, and some exempt classes can be added voluntarily by endorsement.
What is the difference between workers compensation and employers liability?
Workers compensation (Part One) pays the statutory, no-fault benefits your state's law requires, with no policy limit. Employers liability (Part Two) protects the employer against lawsuits the statute does not cover, such as action-over, loss-of-services, consequential-injury, and dual-capacity claims, subject to the Information Page limits.
Can I waive my insurer's subrogation rights in a contract?
Not without an endorsement. Unlike the CGL, the Workers Comp policy does NOT allow for a waiver of subrogation prior to or subsequent to a loss UNLESS the "Waiver of our rights to recover from others" (WC 00 03 13) is endorsed on the policy, and in some jurisdictions, they completely prohibit it. Failing to schedule a required entity is a classic E&O trap.
This guide is for educational purposes and summarizes standard NCCI policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.
The Bottom Line
Workers' Compensation provides statutory no-fault benefits for employees who are injured while working at their job, and also has an Employers Liability section (Part Two) which defends and pays the work-injury lawsuits that workers' compensation does not reach. There are two factors that determine how much you will pay in premiums. The first is the Class Codes and Payroll of your business used by the insurance company as a basis to establish the "Base Rate" for your premium. The second factor is your Experience Mod, or "Mod", which can help you receive discounts for having few losses during a given time period and penalizes you for having many. Obtain a copy of your information page from your agent/broker and verify with them if the classifications being assigned to your business accurately reflect what type of work your employees are performing.
References
- 1.California Legislative Information. “Labor Code Section 4652.” Accessed July 2026. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=4652. ↩
- 2.NCCI. “2026 State of the Line Guide.” Accessed July 2026. https://www.ncci.com/SecureDocuments/SOLGuide_2026.html ↩
- 3.WCIRB. “Workers Compensation Insurance Rating Bureau of California.” Accessed July 2026. https://www.wcirb.com/ ↩